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Is a Signed Letter of Intent a Good Idea?

UPDATED: August 14, 2013

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A letter of intent outlines the basics of your transaction. By signing a letter of intent, especially in a complex commercial real estate transaction, you know early on that you and the seller agree to the major terms of the deal. The letter of intent helps to keep the transaction moving forward, and it can help flush out potential problems before you put time and expense into preparing the contract itself. However, the letter of intent should state specifically that it is not a binding agreement. Only the contract itself should be binding. You want to be free to get out of the deal if later you and the seller cannot reach agreement on the details of the contract.

It can be helpful to consult an attorney on how to draft the letter of intent or at least review it like any other legal document, so you can fully understand its legal consequences. What you might think is a non-binding letter of intent, can actually turn out to be binding and a deal by its words. Also, your conduct after signing a "non-binding" letter of intent can be interpreted by a court as binding. In one case, after signing a non-binding letter of intent, the parties held a press conference to announce a deal. The court later determined the parties had a binding agreement.

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